Journal Publications

  [1] Procyclicality of the Comovement between Dividend Growth and Consumption Growth

       Journal of Financial Economics, Volume 139, Issue 1, January 2021, Pages 288-312


Duffee (2005) shows that the amount of consumption risk (i.e., the conditional covariance between market returns and consumption growth) is procyclical. In light of this "Duffee Puzzle", I empirically demonstrate that the conditional covariance between dividend growth (i.e., the immediate cash flow part of market returns) and consumption growth is (1) procyclical and (2) a consistent source of procyclicality in the puzzle. Moreover, I solve an external habit formation model that incorporates realistic joint dynamics of dividend growth and consumption growth. The procyclical dividend-consumption comovement entails two new procyclical terms in the amount of consumption risk via cash flow and valuation channels, respectively. These two procyclical terms play an important role in generating a realistic magnitude of consumption risk. In contrast to extant habit formation models, the conditional equity premium no longer increases monotonically when a negative consumption shock arrives because it might lower the amount of risk while increasing the price of risk.

◘ Paper Online Appendix Published Version (2021/01)  bib

◘◘ 2018 E(astern)FA (2018/04), 2018 MFA (2018/03), 2017 SoFiE Conference (main conference), New York (2017/06), Federal Reserve Bank of New York, New York (2017/06), 2017 AEA/AFA/ASSA (poster presentation), Chicago (2017/01), 28th Australasian Finance and Banking Conference (AFBC), Ph.D. Forum (2015/12), 28th AFBC, Asset Pricing II (2015/12), Ph.D. Seminar, Columbia Business School (2015/11), 15th Transatlantic Doctoral Conference, London Business School (2015/05), Third-year paper presentation, Columbia Business School (2015/01)

◘◘◘ winner of 28th AFBC 2nd best paper at the Ph.D. Forum (2015/12)

  [2] The Time Variation in Risk Appetite and Uncertainty 

      (with Geert Bekaert and Eric Engstrom)

       Management Science, Forthcoming

We formulate a dynamic no-arbitrage asset pricing model for equities and corporate bonds, featuring time variation in both risk aversion and economic uncertainty. The joint dynamics among cash flows, macroeconomic fundamentals and risk aversion accommodate both heteroskedasticity and non-Gaussianity. The model delivers measures of risk aversion and uncertainty at the daily frequency. We verify that equity variance risk premiums are very informative about risk aversion, whereas credit spreads and corporate bond volatility are highly correlated with economic uncertainty. Our model-implied risk premiums outperform standard instruments for predicting asset excess returns. Risk aversion is substantially correlated with consumer confidence measures, and in early 2020 reacted more strongly to new Covid cases than did an uncertainty proxy.


Paper [2021/02]   Online Appendix  [2021/02]   Download Index  NBER WP (2019/03)   bib

◘◘ Chicago Fed seminar (2020/06), 8th HEC-McGill Winter Finance Workshop (2020/03), 9th ITAM Finance Conference (2020/02), 2019 EFA (2019/08)2019 CICF (2019/07), 2019 EFMA (2019/06)2019 FIRS (2019/05)15th European Winter Finance Summit (2019/03)2019 MFA (2019/03)2019 AFA (2019/01), 31st Australasian Finance and Banking Conference, Sydney (2018/12), 2018 CIRF (2018/12)University of Zurich (2018/12), University of Luxembourg (2018/12)2018 NFA (2018/09), "Machine Learning and Finance: The New Empirical Asset Pricing" hosted by University of Chicago Booth (2018/07), 2018 North American Summer Meeting of the Econometric Society (2018/06), 11th Annual SoFiE Conference (2018/06), Baruch College (2018/05)Federal Reserve Board's Conference on Risk, Uncertainty, and Volatility (2018/04), Columbia Women in Economics (2018/03), Columbia Business School (2018/03)

◘◘◘ Media: Nanyang Business School Forum (blog) (2018/12)VOX CEPR Policy Portal (2018/03)

◘◘◘◘ winner of Global association of research professionals (GARP) research excellence award, China International Risk Forum (2018/12)

Working Papers


  [3] Risk Aversion Propagation: Evidence from Financial Markets and Controlled Experiments

(with Xing Huang)

While the time variation in investor risk appetite is widely examined, there is scant research on how investor risk appetite may respond in an international context. We study risk aversion (RA) propagation from US to other major developed economies. Using daily financial market and news data between 2000 and 2017, we identify US risk aversion events -- both high and low -- and show that the international pass-through of US high RA events is significantly higher (61%) than that of US low RA events (43%), suggesting asymmetric US risk aversion propagation. Next, in our lab experiment, non-US subjects when primed with a US financial bust shock exhibited asymmetrically lower positive emotion, higher negative emotion and higher risk aversion than those primed with a US boom shock. The foreign nature of bust shocks may change emotions more than that of boom shocks, hence resulting in asymmetric risk aversion propagation. Our evidence shows that such an ``emotion''-related mechanism explained up to 20% of the propagation asymmetry. 

◘ Paper [NEW! 2021/07]   bib

◘◘ 2022 AFA (scheduled), 2021 CIRF (2021/07), ECWFC @ WFA (2021/06), JABES seminar (2021/06), Fudan University Economics (2020/11), SAIF (2020/10), SMU (2020/11), Boston College Brownbag (2020/10), Washington University in St. Louis Brownbag (2020/10), WAPFIN @ Stern, New York (2018/09)

◘◘◘ winner of Boston College Research Expense Grant, 2018-2019

  [4] The Global Determinants of International Equity Risk Premiums

         previously titled: Variance Risk Premium Components and International Stock Return Predictability

        (with Juan M. Londono)


We examine the commonality in international equity risk premiums by linking empirical evidence for the international stock return predictability of US downside and upside variance risk premiums (DVP and UVP, respectively) with implications from an international asset pricing framework, which features asymmetric global macroeconomic, financial market, and risk aversion shocks. We find that DVP and UVP predict international stock returns through different global equity risk premium determinants: bad and good macroeconomic uncertainties, respectively. Across countries, US investors demand lower macroeconomic risk compensation but higher financial market risk compensation for more-integrated countries.

◘ Paper [2021/7]  FedResearch   bib

◘◘ 2021 AEA (2021/01), IFABS 2019 Medellín Conference (2019/12), Stanford SITE "Session 7: Asset Pricing Theory" (2019/08)NASMES Summer Meeting (2019/06), ECWFC@WFA (2019/06), FMA Global Conference in Latin America (2019/05)E(astern)FA 2019 (2019/05)MFA 2019 (2019/03)Federal Reserve Board (2019/03)Econometric Society European winter meeting 2018 (2018/12), 2018 CIRF (2018/12), Boston Macro Juniors Workshop (2018/11)Boston College Carroll (2018/11) 

◘◘◘ Semifinalist, 2019 FMA Global Conference Best Paper Awards

  [5] Risk, Monetary Policy and Asset Prices in a Global World

(with Geert Bekaert and Marie Hoerova)


We study how monetary policy and risk shocks affect major asset prices (short-term interest rates, stocks, long-term bonds) in three large economies, the US, the euro area, and Japan, since the turn of the century. Examining the impact of monetary policy on risk, monetary policy does not drive asset price cycles through a risk channel. Instead, we find a strong global common component in risk shocks which is not driven by monetary policy.  Comparing the impact of monetary policy and risk shocks on asset prices across countries, monetary policy spillovers are economically more (less) important for interest rates and bond prices (stock prices) than risk shocks. The US generates relatively important monetary policy spillovers, but information shocks emanating from the euro area produce the strongest effects on international stock and bond markets. We provide suggestive evidence that monetary policy effects on asset prices reflect a persistent interest rate rather than a risk premium effect.

◘ Paper [2021/08]   bib

◘◘ 2021 EFA (2021/08), 2021 EEA-ESEM (2021/08), 2021 CIRF (2021/07), 2021 CICF (2021/07), 2021 FIRS (2021/06), University of Alabama (2021/03), Bank of Spain (2021/03), BI Olso (2021/03), Florida International University (2021/02), 2021 AEA (2021/01), 2020 Annual Meeting of the Central Bank Research Association (2020/09), BI Olso (2020/08), University of Cincinnati (2020/03), 11th International Research Forum on Monetary Policy (IRFMP) (2020/03), MFA (2020/08), SNB-FRB-BIS High-Level Conference on Global Risk, Uncertainty, and Volatility (2019/11), 20th IWH-CIREQ-GW Macroeconometric Workshop: Micro Data and Macro Questions (2019/10), Conference on Advances in Applied Macro-Finance, Istanbul, Turkey (2018/12)

  [6] Global Risk Aversion and International Return Comovements

I establish three stylized facts about global equity and bond return comovements: Equity return correlations are higher, asymmetric, and countercyclical, whereas bond return correlations are lower, symmetric, and weakly procyclical. To interpret these stylized facts, I formulate a dynamic no-arbitrage asset pricing model that consistently prices international equities and bonds; the model features various time-varying global macroeconomic uncertainties and risk aversion of a global investor. I find that different sensitivities of equity returns (strongly negative) and bond returns (weakly positive or negative) to the global risk aversion shock can explain the observed comovement differences. Global risk aversion explains 90% (40%) of the fitted global equity (bond) comovement dynamics.


◘ Paper  Online Appendix  Replication   bib

◘◘ Annual Workshop on Investment- and Production-Based Asset Pricing, Olso (scheduled), 2020 AEA (2020/01), Stanford SITE "Session 8: The Macroeconomics of Uncertainty and Volatility" (2019/08), 2019 UBC summer conference (2019/07), University of Zurich (2018/12), University of Luxembourg (2018/12)London Business School (2018/09), 2018 E(uropean)FA (2018/08), 2018 CICF (2018/07), Boston College (Carroll), Cornerstone, Emory (Goizueta), Georgetown (McDonough), Goldman Sachs, Johns Hopkins University (Carey), University of California (Riverside), University of Minnesota (Carlson), University of Notre Dame (Mendoza), University of Oklahoma (Price), University of Southern California (Marshall), University of Wisconsin Madison, Finance Ph.D. Seminar, NYU Stern (2017/12), Finance Faculty Free Lunch, Columbia Business School (2017/11), Ph.D. Seminar, Columbia Business School (2017/10), Financial Economics Colloquium, Econometrics Colloquium, Columbia University (2017/10, 11), Federal Reserve Bank of New York, New York (2017/09)

◘◘◘ Dissertation Award, Federal Reserve Bank of New York, New York 2017

Selected Work in Progress


  [7] Uncertainty Shocks and Personal Investment: Evidence From a Global Brokerage

        (with Rawley Z. Heimer and Shimon Kogan)

We use novel data from a global retail brokerage to study how shocks to uncertainty affect personal investment around the world. We consider three empirical uncertainty shocks that have been proposed by the literature — terrorism, natural disasters, and large stock price jumps. We then consider how within-country uncertainty shocks affect investment and delegation in global assets on the brokerage. Importantly, the within-country uncertainty shocks (e.g., a natural disaster in Spain) are unlikely to affect world asset fundamentals (e.g., the SPX500). This allows us to isolate the effects of uncertainty shocks on personal risk aversion from their effects on asset fundamentals. We find that uncertainty shocks have scant effects on personal investing. They primarily affect delegation to asset managers on the brokerage, but that the direction of the effects depends on the type of uncertainty shock. Investors increase their delegation by 5% following terrorist activity and reduce delegation by 8% following positive and negative stock market jumps. These findings suggest that the exogenous uncertainty shocks proposed by the literature have heterogeneous effects on individual investment.

◘◘ 2019 ANU-RSFAS Research Camp (2019/12), Boston College Brown Bag (2019/11)

◘◘◘ INQUIRE Europe Research Grant, 2020

  [8] Bond Home Bias 

The three stylized facts as established in Xu (2017b) suggest that international bond investment for a global (U.S.) investor is potentially more attractive from the perspective of diversification benefits, which at first glance seems to deepen another little-known puzzle: bond home bias is significantly higher than equity home bias (Coeurdacier and Rey, 2013). 

  [9] Investor Attention and Equity Risk Premium

(with Melk Bucher)

Traditional asset pricing models assume that information is instantaneously incorporated into prices when it arrives, which immediately assumes investor full attention during all times. Da, Engelberg, and Gao (2011) however show direct evidence that investors appear to have limited attention and it is time-varying. Our paper formally proposes and estimates a measure of investor attention arising from a conditional asset pricing model using a large cross-section of stocks. Our measure allows an endogenous attention to reflect the empirical fact that investors choose its appropriate degree in the wake of changing fundamental (state) variables, such as e.g. information flow. 

  [10] Growth Dynamics at Different Stages of Development

(with Geert Bekaert)

This paper characterizes growth rates at different stages of economic and financial development of 180 countries over 55 years (1960-2014). We present several static stylized facts. In particular, low development stage appears with high growth volatility and positive growth skewness, which is potentially caused by significant growth spurts in these country-years.